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2018 (9) TMI 1979
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....e two petitions are taken one after the other for an easy comprehension of the dispute between the patties and the nature of allegations sought to be levelled against each other by the said directors cum shareholders. C.R. 15/2008 Petition 's Averments. 2. This petition has been filed under Section 397/398 of the Companies Act, 1956 by one Mr. Pramod Goil, the director of Respondent I Company, SBF against the only Other director of SBF, Mr. Lalit Aggarwal. who has been impleaded as Respondent NO. 2 and the Statutory auditor Of the SBF, Mr. Mahesh Gupta, impleaded as Respondent No. 3 ("R3") for illegal allotment of shares of SBF to R.2's relatives and friends ("LA's group"). 3. PG avers in his petition that SBF was incorporated on 15.03.2004 by PG and LA as a quasi-partnership for carrying on business of manufacturers and dealers of castings and forgings. Until an illlegal allotment by LA, being one of the challenges in this petition of PG, PG's group, it is averred, held 70.105% and LA group held 29.895% of shareholding of the SBF, in the 70:30 ratio, according to the prior understanding between PG and LA. 4. PG states that the Articles of Association....
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....actual position Subordination of unsecured loan of Rs. 80.IO Iacs as on 31.03.2007 Allotments were made by conversion of unsecured loan Share application money of 48 Iacs should be converted into caital Instead of share application money the unsecured loan was converted Company to raise unsecured loan from 80 Iacs to 180 lacs Unsecured loan of Rs. of LA group sought to extinguished by conversion into capital of Company 7. Further claims made in the petition are that both PG and LA have a cheque book each for withdrawing money from SBF's bank account. LA has been misusing the same by withdrawing money for personal use as follows: Cheque No. Amount in Rupees In favour of 139478 2 lacs Self 139479 3 Iacs Self 139481 5 Iacs Rexona (unconnected party) 139482 4 lacs Rexona 139457 15 lacs BSL 139458 15 lacs BSL (when confronted by PG, R2 remitted a sum of Rs. 25 lacs Company's account but rest Rs. 5 out of Rs. to the Iacs 30 lakhs were not returned 139459 and 139460 5 Iacs each BSL 8. Further, t....
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....alled to discuss the operations but all such requests were ignored. 13.LA states that allotments made on 17.12.2007, 28.12.2007 and 27.02.2008 were made consequent upon increase Of authorized capital of SBF to Rs. 150 lakhs on 21.11.2007 to maintain the 50:50 ratio and with knowledge and consent of PG. Thus, the increase was in no way prejudicial to the interests cf PG or SBF. Further, LA states that no board meetings have been held in SBF till date, not even for the earlier allotments of shares to PG and his group and thus, similarly, no board meeting was held for the concerned allotments to the group. 14.LA also claims that the digital signature Of PG was with PG himself and he had placed the same on the Form 2 and also claims that the earlier forms filed for allotment of shares were filed physically and thus, required PG's physical signature. 15.Further, LA states that Santokh Singh and Jaswinder Singh are proprietors of Khatter Exports whereas Ramesh Nath Mehra is the proprietor of Kanishka Exports and that the money for allotment was received before 31.03.2017. however, PG has only annexed bank account statements Of SBF from 01.12.2007 to 14.12.2007. 16. Regard....
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....ishing the SBF and agreed to induct LA in his business with the ratio of 70:30 shareholding only because they were related. Further, a perusal of the sanction letter of Canara Bank makes it clear that the term loan and the cash credit limit were provided by bank primarily on the basis of the collaterals given by PG, contrary to what has been claimed by LA in his reply. Fulther, from all the collaterals furnished to Canara Bank, almost 70% Of the collaterals and guarantees was that of PG' s group. 23.PG states that LA has admitted in his reply that no board meeting ever took place in SBF and that no boalli resolution was passed in favour of the allotment of the shares. Thus, by the own admission Of LA the allotment was illegal. Another discrepancy which PG has pointed Out in the rejoinder regarding the allotment Of shares is that the Form 2 uploaded On the MCA portal indicates that the shares have been allotted against cash however no cash was received by SBF and no cash transactions have been recorded in the books of accounts for the same; on the contrary, the unsecured loan lying with the company has been converted for allotment Of the shares. Further, PG also states that M....
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....uthority, in Other words, making the same allegations against R.3 as made in the present petition. 28. R3 further claims a disciplinary committee was formed and after perusal of records and evidence, R3 was held not guilty of professional and other misconduct. Thus, avers that the allegations made in this petition are also false, fabricated and baseless and should be dismissed qua R3. 29. PG in his reply has stated that R3 has hidden the fact that a charge sheet has been filed against R3 and investigation is also pending in relation to charges of connivance and fabrication levelled against him. PG, relying on the charge sheet has tried to substantiate the allegations against R3 and has claimed that R3 has hidden the fact of the criminal proceedings pending against him from the Tribunal because R3 is aware that he will be eventually convicted in the criminal proceedings. C.P. 47/2008 Petition 30.The second C.P. NO. 47 of 2008 has been filed under the Sections 397 and 398 Of the Companies Act, 1956 by LA, who is the second respondent in the first petition C.P. 15/2008, along with Seema Aggarwal, LA's wife and Lalit Aggarwal HUF against PG, the only other director o....
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....ring 2005-06 and 2006-07, the pmduction of SBF should have been 9345 MT and 21305 MT instead of 385 MT and 10419 MT as reflected in the books of account for these two years. This suppression Of production translates into a loss of revenue of around Rs. 10 crores in 2005-06 and Rs. 20 crores in 2006-07. LA claims that PG has pocketed the above sums causing serious loss not only to the SBF but also to the stakeholders including LA. An analysis Of the power bills for the period 2007-08 indicates that average rate per Limit is Rs. 3.79 per unit as was projected by SBF and the said average rate per unit has been used for calculating the 'ought to be actual turnover' as against 'purported/reflected actual turnover'. d. In October 2007 LA wrote to R6 for making the Oration of the bank account Of SBF jointly in place Of several signatures Of LA and PG. However, R6 rejected the request Of LA stating that it has to be accompanied by a board resolution. LA states that though R6 rejected LA's request for joint operation on the pretext of unavailability of board resolution, R6 sanctioned the enhancement of the cash credit limit without asking for a board resolution to that ....
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.... iron melts, which are to be considered. Therefore, there is every possibility that the actual pmduction may be less than the production under ideal conditions. d. PG denies that no actual board meetings have taken place in SBF and only paper meetings have taken place, as alleged by LA. PG states that since SBF has only 2 directors, in order to simplify matters, it was not a practice to take down the minutes of the meetings Of Board Of Directors. All resolutions used to be passed after lengthy and detailed discussions between the two directors. It has also been stated that being a director of SBF, it is also the responsibility of LA to ensure that the statutory meetings are convened at the appropriate time, in compliance with the law. Thus, the aforesaid conduct of LA shows the lack of interest of LA in the affairs of SBF. e. Further, PG states that Canara Bank enhanced the working capital only at the behest of both directors since both the directors approached the bank together for the enhancement. f. PG states that on 24.07.2008 the Company Law Board had directed the convening of a board meeting within 15 days and agenda for the board meeting to be give....
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.... Was CA 150/2011 wherein the CLB vide order dated 08.03 2013 appointed Seema Naresh Bansal and co. to conduct fair and independent inspections of the financial transactions and accounts of SBF. The said order was challenged by LA before the Hon'ble Delhi High Court and the Hon'ble High Court by order dated 13.05.2013modified the Order dated 08.03.2013 to the extent that a comprehensive audit Of the accounts Of SBF may be undertaken by the chartered accountant appointed by CLB from the year 2007-08 to 2012-13. However, the auditor appointed resigned for various reasons and another auditor kapoor S. Jain & Co. vide order dated 30.08.2013 was appointed by the Hon'ble High Court The auditor so appointed contacted PG for relevant documents to carry out the audit but were not supplied with any documents. The Hon'ble High Court took note of this fact in its order dated 09.1-2013 and imposed costs ofRs. 25,000t- On the respondents. 35.Another application CA 18/2013 was filed by LA for appointment Of administrator of SBF and thus, the CLB appointed Mr. Rakesh Chandra as the administrator of SBF vide order dated 30.01.2014 for monitoring and coordinating the date to day wo....
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....tor's address in Panchsheel. The car caught fire and all the documents in the car were destroyed by fire. Thereafter, PG stated to the administrator that he shall reconstruct the account books. The administrator in its report dated 29.02.2016 stated that PG did not reconstruct the account books and he also stopped appearing before the administrator. The administrator Mr. Justice Anil Kumar resigned from his post on 29.02.2016. 38.Certain more additional documents have been filed by LA which show the dubious workings carried out in relation to SBF. The Registrar Of Companies ("Roe) issued a show cause notice dated 03.10.2013 to SBF, PG and LA stating that registered office has been stated to be at 3/56, Ram Gali, Pandav Nagar. Shahdara, Delhi - 32 but SBF is in default for not maintaining its registered office at the Shahdara address, as the letter sent to SBF's registered office is returned back to the ROC office. Delhi with the remark 'Left without Address' and for violating Section 146 of Companies Act 1956. 39.Amongst the various Orders passed against SBF and its officers by various authorities, an order dated 2003.2013 passed by the Office of Commissioner,....
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....e. Whether RI siphoned Off money from RI 's bank account? f. Whether R2 replaced his Gurgaon propeuty mortgaged with Canarg Bank with property of BSL Buildcon for which the PG also paid Rs. 15 lacs? g. Whether the PG has siphoned off sums Of RI? h. Whether the PG has manipulated the books Of accounts, financial statements and other records of RI ? i. Whether the enhancement of the cash credit limit from 85 !acs to 200 lacs by Canara Bank if frvour Of RI was in violation Of specified procedure? First Issue 43.1n view Of allegations of grave nature being made by each Of the petitioner's primarily against the Other in the respective petitions in relation to the affairs Of the respondent company, for deciding the first issue it is necessary to discuss the principle of equity that the person who seeks equity must come with clean hands and its application in cases of oppression and mismanagement. 44. The Hon'ble Supreme Court in Sangramsinh P. Gaekwad &Ors. vs. Shantidevi P. Gaekwad (Dead) through LRs & Ors. , while discussing the nature of reliefs that can be granted in the case, stated as follows: "204. The Court may als....
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....f Of those allegations would not entitle the petitioner to the reliefs sough' for when these reliefs are discretionary reliefs and they will be granted only to persons who approach this court in good faith and the parties who approach this court for equitable reliefs must come with a clean record. I do not go to the extent of accusing the petitioner for not approaching court with clean hands, but am satisfied that the petitioner 's earlier conduct borders on recklessness as he is prepared to disown his own obligations, his own documents for the sake of obtaining some advantage against his adversary. so, such a person should not be entitled to the reliefs under sections 397 and 398 ofthe Act. " 47. The Hon'ble National Company Law Appellate Tribunal in Surgi Aid Lifecase p. Ltd. Ors. vs Rahu/dev Vyas, overruled the order Of the NCLT in which the NCLT had granted relief 10 the petitioner even when it was apparent that the petitioner had not approached NCLT with clean hands. "9. From the above, it is clear that the learned National Company Law Tribunal could see from the record that the original petitioner was not with Clean hands. Rather, the last paragraph Of....
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.... bringing about the State of things complained Of and that he was not unfair or inequitable in his dealings with the party against whom he was seeking relief'. The petitioner seeking equitable relief must come with clean hands and good conduct The Supreme Court has held that the maxim, he who comes into equity must come with clean hands does not mean that every improper conduct of the applicant disentitles him to equitable relief The maxim may be invoked where the conduct complained of is unfair and unjust in relation to the subject-matter Of the litigation and the equity sued for. The CLB would do well to consider the severity Ofthe allegations of oppressive conduct and the prejudice caused to the petitioner vis-a- vis the respondents since the primary purpose Of the remedy provided by the sections 397 and 398 is to protect minority shareholder from the oppressive Conduct Of the majority shareholder. If a person acts in a manner prejudicial to the interest Of the company as well as the shareholders acting in violation Of mutual trust and coqfidence his conduct would be that of a person who has not come to the court with clean hands. The affairs of a comgxzny Can be conducted o....
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....ited in relation to the principles governing this Tribunal as to the well-known maxim "he who seeks equiw must do equity and he who comes into equity must come with clean hands". 51. Under the given circumstances can the petitioners in the respective petitions surmount the test posed by the above two maxims with a view to invoke the equitable jurisdiction Of this Tribunal and tug at its strings to afford remedies which are equitable in relation to SBF and its shareholders including the petitioners Of the respective petitions. Both the petitioners Of the respective petitions do not have the right to relief under the equitable jurisdiction Of this Tribunal in view Of their prejudicial conduct, which can be ascertained by the subsequent developments in the matter thus being guilty either according to their own admission or in view Of their conduct before judicial authorites. 52.At the cost of repetition, PG, the petitioner in C.P. 15/2008, has avoided furnishing the documents Of SBF at even' tum, then claimed that all documents were accidentally destroyed and failed to reconstruct the documents even after undertaking the task of reconstruction, giving rise to the presumption....
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.... the facts also clearly establish there has been serious violation on the part of SBF in relation to availing CENVAT credit and SBF, its is evident, is being used as an instrument to perpetrate illegallity between themselves as well as against the revenue, in other words, the State 55. There are about 30 matters pending before various forums to investigate into the different aspects of affairs of SBF and acts of PG and his group, which also include certain criminal proceedings. The CLB vide its order dated 18.11.201S directed the ROC, NCT Of Delhi and Haryana, on the basis of the repott filed by the first administrator Of SBF, Rakesh Chandra, in which it was stated that SBF is responsible for violation of multiple provisions Of the Companies Act, 1956. It appears from letter dated 16.062016 Of the ROC addressed to LA that the matter is under process. However, no futther information is available in relation to these proceedings. 56.Keeping in mind all the facts and circumstances of the present matter it is evident that there exists a ground for winding up SBF on the grounds that it is just and equitable to do so. The only question confronting the Tribunal is whether by such an....
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....rectors, and the law was thus stated at page 788 : It is undoubtedly true that at the foundation Of applications for winding up, on the Tust and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management Of the company's affairs. But this lack Of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. " Further more the lack Of confidence must spring not from dissatisfaction at being Out voted on the business affairs or on what is called the domestic policy Of the company. On the Other hand whenever the lack of confidence is rested on a lack of probity in the conduct Of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up. 58. Thus, this Tribunal is Of the considered view that in relation to the affairs Of SBF there has been a absolute lack of probity in its dealings by both the petitioners and hence SBF is required to be wound up taking into consideration the facts and circumstances of the two company petitions filed by the rival panies t....